Money and mirrors

Adam Smith said, “The tax which each individual is bound to pay ought to be certain, and not arbitrary.” Add to that common thinking that an effective tax is generally judged to be one that is easily understood and enforceable and you could be forgiven for scratching your head this morning.

Between the UK government wanting to be seen to deal with this year’s demons – the bankers – and the Copenhagen Summit determined to be seen to deal with the environment’s demons – the airlines – we seem to be morphing to using tax as a popularity instrument rather than as a means of obtaining revenue to fund government activities.

The UK government is said to want to levy a windfall tax on the bonuses of bankers. Windfall taxes are not without precedent in the UK. Taxes on a category of employment rather than specific businesses are a different matter. How would you define a bank? How do you define which of a bank’s employees are bankers? How would you define a UK bank? American Express is a bank and it has a large UK operation. Will all bonuses paid by American Express be subject to this windfall tax? In reality how much tax could a tax on individuals’ bonuses raise? Several hundred million pounds might be a generous estimate. Will this cure the UK’s underlying ills? A short-term political gain by punishing the universally unpopular “bankers” could create long-term economic problems for the UK, a country which long ago abandoned any manufacturing for services, financial services being at the top of the list.

Similarly, the UN’s Summit on Climate Change in Copenhagen is thought to be seriously looking at a global aviation tax on international flights as the means to fund developing countries’ plans to deal with global warming. Just as banking practices are not wholly absent from the list of causes of the current economic downturn, airlines are acknowledged polluters. But airlines are taking more than their fair share of responsibility because they have become a politically acceptable target. Cars, energy and pets are not carbon neutral but these would be too unpopular a target. Methane is causing as much warming as carbon but no one has yet started taxing meat and dairy.

As with the banks, airlines, for better or worse, are an enabler of global business. Whereas leisure travellers have a choice about where to go on holiday and how to travel, business travellers have no choice about what destination they must visit and when. Virtual meetings are as often as not a complement rather than a substitute for corporate travel.

Optional extras

iPlayer is wonderful. How else could you catch up on everything you never knew you wanted to know? I never listen to Radio 4’s Money Box because I always end up depressed after being reminded how negligent I’ve been in the area of financial management but I’ve just caught up with Saturday’s edition which had an item on the escalating practice of airlines’ surcharging for use of credit and and debit cards to pay for flights booked on their websites.

Hmph. We’ve been paying extra for online bookings for ever. Airlines have always justified this as a cost of distribution and a sort of equivalent to the credit card companies’ merchant fee that they are absorbing. So why is everyone getting excited now?

Probably because, like BA’s new policy of charging for reserving a seat, it’s a visible and prominent example of the growing trend of disaggregating air fares and its new cousin, ancillary charges. Ancillary charges may be a nuisance but so long as they are flagged before a booking, or are deemed to be “optional”, they are legal. Ryanair could always justify its credit and debit charges on the basis that you avoided such fees if you chose to pay by Visa Electron. As Visa Electron is issued by only a handful of banks and is not a full service card but something more suitable for students, Ryanair could do this safe in the knowledge that most of its customers did not possess such a card and therefore would be paying the debit and credit card fee. It has now announced that from the first of January Electron will cease to be free but there will still be a payment-free-of-surcharge option, namely Mastercard’s new cash prepay card. Oy vey.

The bigger issue, of course, is transparency for customers. These practices may be irritating but they are legal and so long as consumers don’t vote with their chequebooks and take their business to suppliers that do not surcharge, these “extras” – and all the irritation that comes with them – are here to stay.

 

Hello world!

Ancillary airline charges – a storm in a teacup?

An ACTE survey of its US travel buyers reveals some managerial unease on the issue of airlines charging for extras. 29% of the survey’s 300 respondents said they did not manage ancillary charges well while another 51% said they managed them only “somewhat well”. In other words the kind of answers you don’t want to hear at an annual performance review.

The associations report a veritable fury among buyers. In fact the UK’s Institute of Travel and Meetings and the US’s Business Travel Coalition announced plans to create an Industry Solutions Group to develop and build consensus around standards and policies for airline product unbundling. The international industry group will comprise corporate travel managers, airlines, global distribution system representatives, airline alliance representatives, travel association executives and other industry stakeholders.

So. The airlines are a struggling industry. One reason they’re struggling is that there’s depressed demand from business: businesses see travel as an easy place to cut costs whether by merely cutting the cost of a trip or cutting out a trip. So travel buyers – to show more effective startegic sourcing – start incorporating low-cost airlines into their model and some prominent low-cost airlines are still turning a profit while some very big and established legacy carriers post record losses. So those in the sector not doing so well – legacy carriers – look at those that are doing better – low-costs – and low and behold, they decide to adopt some of their policies, namely adding on for “optional” extras.

The result? An international task force to find a solution. Did the airlines create an international industry solutions group to help them when Brent crude nudged $150 a barrel? Why do some segments of the industry cry “partnership” when they strike difficulties while others just go off to find solutions?